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Bust 422: Business Taxation Question Paper
Bust 422: Business Taxation
Course:Bachelor Of Education Arts
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
EXAMINATIONS FOR THE AWARD OF DEGREE OF
BACHELOR OF EDUCATION
BUST 422: BUSINESS TAXATION
STREAMS: BED Y4S2 TIME: 2 HOURS
DAY/DATE: WEDNESDAY 24/4/2013 11.30 AM – 1.30 PM
INSTRUCTIONS:
1. Answer ALL Questions
2. Show all your workings
3. Do not write on the question paper
1. (a) Recently there has been a lot of debate on how the government is going to finance
its activities especially the huge wage bill necessitated by the new constitution. There is a lot of speculation that the government will need to increase taxes. However, many people still feel that the tax system is unfair.
(i) Differentiate between the following terminologies used in taxation
[6 Marks]
(a) Regressive tax and progressive tax
(b) Tax liability and taxable capacity
(c) Elasticity and flexibility
(ii) Equity is very hard to achieve in taxation. Explain the various proposals on how to achieve this canon. [8 Marks]
(b) Kahawa Ltd started the business of coffee milling on 1 January 2011 after
incurring the following capital expenditure:
Ksh
Electronic tax register 96,000
Factory building 3,400,000
Coffee milling machinery 1,200,000
Lorry (3 tones) 2,400,000
Saloon car 2,500,000
Computers 600,000
Furniture 400,000
Fax machine 36,000
Godown 840,000
Staff quarters 720,000
Staff canteen 800,000
Staff clinic 540,000
Tractor 940,000
Additional information:
1. Factory building includes cost of a showroom Ksh. 180,000 and a retail outlet Ksh 140,000
2. Milling machinery’s pretesting and installation costs were Ksh. 40,000 and Ksh.60,000 respectively
3. A farm house was constructed at a cost of Ksh. 600,000 during the year 2012
4. Sold coffee during the year 2012 for Ksh. 8,000,000 after incurring the following costs:
• Clearing of bushes Ksh. 78,000
• Purchase of pesticides Ksh. 24,000
5. The saloon car was traded in for a new one in 2012 whose cost was Ksh. 3,000,000. The trade in value was Ksh. 800,000
6. Class II items were all disposed of at Ksh. 760,000
Required:
(i) Capital allowances due to Kahawa Ltd for the years ended 31 Dec 2011 and 2012. [12 Marks]
(ii) Taxable profit or loss for the year ended 31 December 2012. [4 Marks]
2. (a) Explain the position of the law on taxation on the following employees of Maji
Enterprises, a company registered in Kenya: [6 Marks]
• Craig is a Briton who was seconded to the company for 3 months in 2012 to start of a project after which he went back to the UK. He was so excited about the secondment since this was his first time to come to Africa. Craig also earned 2 million shillings from his farming business in the UK in 2012.
• David is a Briton who had to work on the project started by Craig and so he had to stay for the whole year. He has a computer business in the UK from which he earned 5 million in 2012.
(b) What does the term “persons” mean in taxation and which persons are liable to tax in Kenya. [3 Marks]
(c) Mr. Wambua reported the following information relating to his income for the year ended 31 December 2012.
(1) He was employed by Kazi Ltd as an accountant at a basic salary of Ksh. 720,000 per annum
(2) He received the following benefits while he worked as an employee of Kazi Ltd:
• House allowance Ksh. 120,000 per annum
• Travelling allowance Ksh. 60,000 per annum
• Company car of 2,000 cc that had cost the company Ksh. 1,200,000 in 2010
(3) He left Kazi Ltd on 1 September 2012 and was immediately employed by
Summit Ltd at a basic salary of Ksh. 960,000 per annum.
(4) He received the following benefits from Summit Ltd:
• A furnished house with the cost of furniture being Ksh. 200,000
• Company shares worth Ksh. 100,000 for which he paid Ksh. 10,000
• Car benefit. The car was leased for Ksh. 120,000 per annum from Focus Car services Ltd.
• He contributed Ksh. 37,500 per month to a defined retirement benefits scheme and Ksh. 15,000 per month to a home ownership savings plan. The employer contributed an equal amount for him in each case.
(5) On October 2012, he obtained a loan of Ksh. 2 million at an interest rate of 5% per annum from Summit Ltd repayable in 10 years. The market interest rate was 15% per annum.
Required:
(i) Taxable income for Mr. Wambua for the year ended 31 December 2012. [8 Marks]
(ii) Tax payable by Mr. Wambua on the income above. [3 Marks]
3. (a) The customs and Excise Act provides that goods may be forfeited. Explain
forfeiture and the cases that may lead to forfeiture. [3 Marks]
(b) Explain dividends and interest and how income from dividends and interest is
taxed in Kenya. [5 Marks]
(c) Maswali Ltd is registered for VAT. The company’s accounts on 1 January 2012
reported stock valued at Ksh. 75,000 for which VAT has been paid. These goods were sold in February 2012. During the four months ended 30 April 2012 the company had the following transactions:
Month Purchases (Ksh.) Sales (Ksh.)
January 4,470,000 5,960,500
February 5,091,200 6,320,250
March 3,490,600 2,950,000
April 7,143,200 9,280,700
The sales and purchases are inclusive of VAT where applicable.
Additional information:
• 20% of monthly sales and purchases relate to exempt goods respectively
• 5% of monthly sales represent goods exported to Somalia
• Credit notes amounting to Ksh. 68,000 were issued to customers in April 2012
• Debit notes amounting Ksh. 45,000 were received from suppliers in March 2012
(The VAT standard rate is 16% where applicable)
Required:
The VAT account for the four months period ended 30 April 2012. [12 Marks]
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